WESM’s single settlement starts in May billing

At a glance

  • If underpinned by appropriate policies and strong regulatory frameworks, a single settlement system can simplify and improve processes in the electricity spot market.

The single settlement system for capacities traded via the Wholesale Electricity Spot Market (WESM) across all grids will  kick-off in the May billing cycle, the Department of Energy (DOE) said.

In an advisory issued this month, Energy Secretary Raphael P.M. Lotilla stipulated that WESM’s shift to a single settlement system was prompted by the recent energization of and the actual flow of generated electricity in the Mindanao-Visayas Interconnection Project (MVIP) starting April 30 this year.

In line with that development, the energy chief advised all relevant market participants that spot-traded capacities in Luzon, Visayas and Mindanao grids “shall be treated as a single settlement region starting May 2023 billing period,” in compliance with the prescriptions of the WESM Rules and market manuals.

As explained, having a single settlement mechanism requires the integration of pricing settlements across grids into a unified process, instead of enforcing different settlements for the amalgamated Luzon and Visayas markets; and that of the recently-commercialized WESM in Mindanao.

By consolidating the settlement process into a single system, it was indicated that the administrative complexities can be simplified because this will eliminate the need for multiple platforms and can also fend off added work on calculations and reconciliations on traded capacities, resulting in lower costs.

On the part of the spot market trading participants, they can gain leverage on better cash flow supervision because it will be easier for them to consolidate payments and track receipts, thus, that could improve overall liquidity management.

Issues raised on a single settlement system, however, include the need for stronger regulatory frameworks that can prevent market power abuse. Also raised is the ability to enforce transparency and ensure that consumers in some segments of the market or grid will not be unfairly charged with higher rates.

There had been apprehensions expressed earlier that due to the tight supply condition in the Luzon grid, a single settlement system may spark off unreasonable escalation of prices in other parts of the electricity system, primarily Mindanao grid which is on a surplus mode of power capacity.

Energy Regulatory Commission (ERC) Chairperson Monalisa C. Dimalanta affirmed that the single settlement system is already enforced in this month’s billing cycle, although she qualified that the all-inclusive cost impact, primarily for Mindanao grid remains relatively marginal.

“We see very minimal impact, if at all, since HVDC (high voltage direct current) capacity is still limited to 50 megawatts. That means, it’s still separated price for Mindanao to that of Luzon and Visayas,” she emphasized.

The sharing of power capacity across all grids via the MVIP is still at its gradual ramping up; and the full commercial operation is targeted by July to August this year.